Petrochem producer margins estimated to suffer setback in H2

29-Jul-08

Petrochemical producer's bottom line is estimated to suffer a set back in H2 on account of rising oil prices and slackening consumption. Margins are estimated to sink below last year´s 9%, averaging to 2-3%. It is feared that post Olympic Games, demand from China will not pick up as the country's economy is not expected to gather momentum for the rest of the year. This slowdown is deeply influenced by the global economic slowdown and domestic political turmoil. Petrochemical firms should watch out for a margin squeeze when purchasing power and demand fall after the Olympic Games end next month. Delays in construction of projects in the Middle East region kept petrochemical prices high in the first half. However, supply is expected to trickle into the markets, and gradually gain by end of year as plants in the Middle East come onstream- further softening petrochemical prices. When petrochemical firms are in this situation, they usually manage by embarking on maintenance shutdowns to escape from the burden of a loss. Newer markets of South America, South Africa and Eastern Europe will have to be explored, as the petrochem majors adopt strict control over production and logistics costs.